Which jurisdiction for Holding Company?

[chrisgerth]

Hello,

business is doing well and profits are pilling up. In order to achieve asset protection as well as branching out into real estate I would like to introduce a Holding structure to my following setup:

1. Company from Switzerland acting as Sales-Agent
2. Company from Hungary providing SaaS to Suisse Sales-Agent via Software-License-Agreement

Both companies are owned 100% by myself (EU citizen and resident in Hungary).

I asked my local accounting firm for advise.
They gave my a short briefing, basically saying that if I use a Hungarian entity as Holding company I end up paying unnecessary social contribution tax in case I take out money from Holding company.
They said that other jurisdictions offer better tax deals and also even more protection, but they did not give concrete examples of such jurisdiction.

My question is now - Which country offers best Holding scheme?

1. I looked into Seychelles but banking seems impossible.
2. How does Cyprus fit in? I do need at least 2 local directors, correct? What are the running costs as well as set up costs?
3. Singapore?
4. Denmark/Austria?
5. Labuan?

 

[CyprusLawyer101]

Is my understanding correct that you have a SaaS that is sold by the Swiss company?
It seems that some restructuring can result into some good tax saving. Your software may qualify under IP box regimr , resulting to much reduction in taxation.
What is your tax residency?

 

[chrisgerth]

Is my understanding correct that you have a SaaS that is sold by the Swiss company?
It seems that some restructuring can result into some good tax saving. Your software may qualify under IP box regimr , resulting to much reduction in taxation.
What is your tax residency?

I am a tax resident in Hungary. The company from Hungary providing SaaS is already running under IP-BOX in Hungary (4.5% tax on profits).

 

[Sols]

1. I looked into Seychelles but banking seems impossible.

Adding a Seychelles holding company to a Switzerland + EU set up is like enhancing a glass of wine with lighter fluid.

Don't.

2. How does Cyprus fit in? I do need at least 2 local directors, correct? What are the running costs as well as set up costs?

The minimum number of directors is one. There is no requirement that the directors are resident in Cyprus.

Costs vary a lot. A simple holding company with little to no activity, with a local director (can be helpful for economic substance), would probably cost a few thousand EUR per year.

3. Singapore?

A fine jurisdiction.

4. Denmark/Austria?

Unnecessary complication in your case. Not really optimized for non-residents.

5. Labuan?

Similar to Seychelles. Adds nothing of value.

 

[Marzio]

In your case I would probably look into Estonia for a holding.

 

[chrisgerth]

In your case I would probably look into Estonia for a holding.

Are there any taxes on distribution of dividends from Estonia Holding Company to myself?

 

[myhand]

Cyprus, Switzerland and Romania as Lichtenstein could all possibly hold you assets good protected.

 

[Marzio]

Are there any taxes on distribution of dividends from Estonia Holding Company to myself?

Taxes | Rahandusministeerium

Taxes are levied primarily to raise revenue for central and local government. Taxes are compulsory levies and are unrequited- generally taxes are not paid in exchange for some specific public service or a benefit.

www.fin.ee

 

[chrisgerth]

Taxes | Rahandusministeerium

Taxes are levied primarily to raise revenue for central and local government. Taxes are compulsory levies and are unrequited- generally taxes are not paid in exchange for some specific public service or a benefit.

www.fin.ee

So that means if the EST Holding company holds the shares of CH and HU business that there is no tax applied when profits are distributed via dividends payments?

What is the average cost of running a EST company?

 

[Marzio]

So that means if the EST Holding company holds the shares of CH and HU business that there is no tax applied when profits are distributed via dividends payments?

That's right.

What is the average cost of running a EST company?

That's a question for @Don because i guess you will require at least a director and an office in EE.

 

[Don]

That's right.



That's a question for @Don because i guess you will require at least a director and an office in EE.

So that means if the EST Holding company holds the shares of CH and HU business that there is no tax applied when profits are distributed via dividends payments?

What is the average cost of running a EST company?

Depends on many variables.
Are you going to establish your tax residence in Estonia?

Accounting fees for a holding company are normally around 2k per year, and that's about what you will have as mandatory costs.

If you want outsourced director, office, insurance for peace of mind, then add a few hundred per month.

 

[chrisgerth]

Depends on many variables.
Are you going to establish your tax residence in Estonia?

Accounting fees for a holding company are normally around 2k per year, and that's about what you will have as mandatory costs.

If you want outsourced director, office, insurance for peace of mind, then add a few hundred per month.

Hi, I do not want to change current personal tax residency (Hungary). Is it sufficient to just set up a EST company with virtual office and local contact person in order to make the EST Holding company tax resident in Estonia?

 

[Marzio]

A legal entity is considered resident in Estonia for tax purposes if it is established under Estonian law. There is no management and control test for the purpose of determining corporate residency.

Estonia - Corporate - Corporate residence

Detailed description of corporate residence rules in Estonia

taxsummaries.pwc.com

 

[Don]

Hi, I do not want to change current personal tax residency (Hungary). Is it sufficient to just set up a EST company with virtual office and local contact person in order to make the EST Holding company tax resident in Estonia?

A legal entity is considered resident in Estonia for tax purposes if it is established under Estonian law. There is no management and control test for the purpose of determining corporate residency.

Estonia - Corporate - Corporate residence

Detailed description of corporate residence rules in Estonia

taxsummaries.pwc.com

Yes, but you should hire a local director to avoid the company becoming a tax resident in Hungary.

 

[Marzio]

you should hire a local director to avoid the company becoming a tax resident in Hungary.

I think that's what he was referring to when he said "local contact person"

 

[myhand]

Yes, but you should hire a local director to avoid the company becoming a tax resident in Hungary.

How easy is that?

 

[Marzio]

Hi, I do not want to change current personal tax residency (Hungary)

I can see why!

 

[chrisgerth]

I think that's what he was referring to when he said "local contact person"

No, I was referring to the requirements described here Contact person in Estonia – Estonia-company.ee . Local contact person basically serves as communication interface to local authorities. I did some google search about nominee directors for EST companies but could not find anything. I will consult with my HU accountants in order to find out whether the EST holding company would need a local director or not.

 

[Don]

How easy is that?

No, I was referring to the requirements described here Contact person in Estonia – Estonia-company.ee . Local contact person basically serves as communication interface to local authorities. I did some google search about nominee directors for EST companies but could not find anything. I will consult with my HU accountants in order to find out whether the EST holding company would need a local director or not.

The trust concept primarily evolved in English legal system jurisdictions (e.g., UK, Cyprus) and is unique to common law, as civil-law countries lack such a versatile tool for multiple legal relationships like nominee directorship.
Estonia has a civil law system based on German law, so it has no comparable nominee director services.
While in Cyprus you can get a nominee director for 600 EUR/year, in Estonia, a director has real risk and responsibility, making it seemingly more difficult to find somebody to fill this role. However, specialized professional licensed trust management firms can provide fractional directors, and such comparable service is actually way cheaper than you can find in Cyprus or the UK. The service can be backed up by insurance protecting the UBO from potential losses from mismanagement. This is exactly what you need to mitigate tax risks, even if you consider incorporating it in common law jurisdictions - you want the director to actively participate in the transaction meetings offering economic substance for the company, which would not be the case if your director is at the same time hired in 500 other companies pocketing 600 EUR from each.

Now, coming to the legal contact person service, it is not required when a company has a local resident director.
The legal contact person is a service that is obligatory in Estonia in case the address and or directors of the legal person are abroad.
It is an eligible person (a law firm, auditor, notary, or trust management company) to whom the procedural documents of the legal person and the declarations of intent addressed to the legal person may be delivered in Estonia. According to law upon delivery of a procedural document or declaration of intent to the contact person, it is deemed as delivered to the legal person.
It's a service used mostly by companies that don't have any substance in Estonia. It has actually been very popular since Estonian company with zero substance still offers plenty of value in many cases. E.g., Estonia does not impose withholding tax on profits of foreign PE, and it's often a legal way to reduce tax (or defer personal income) when you operate with an Estonian company in your home country instead of opening a local company.

As you might know, EU Directives have introduced the UBO register. Estonia has taken a stance that there are no trusts and legal arrangements similar to trusts in its legal practice that are subject to UBO-register rules, while actually there are available legal arrangements with similar characteristics that allow hiding the UBO, in particular, silent partnership and contractual investment funds.
A silent partnership is not a legal entity and is tax-transparent.
The law does not prescribe any format for this contract, and it is not obligatory to be entered into the UBO register.
In the case of a silent partnership, only one of the parties (the ‘proprietor’) is visible to third persons, while there exists an internal relationship that offers privacy to the other party to the contract – the silent partner.
The silent partner makes a contribution (cash, services, or other assets) to the business of the proprietor and in return is entitled to share in the profits arising from the business. With respect to third parties, the proprietor is the owner of the commercial enterprise and carries on business in his own name. For certain operations, the proprietor should obtain the consent of the silent partner. The silent partner is generally not liable for third-party claims arising from the business. Nevertheless, if an agreement is not made otherwise, he has to participate in the losses of the business. Under the partnership agreement, the silent partner might have the right to participate in the decision-making. Partners do not commit to mutual performances, but to performances aimed at achieving a common goal. Therefore, it is not a mutual agreement.